Misspecified asset price models and robust hedging strategies
Authors:
Hyungsok Ahn Adviti Muni; Glen Swindle
DOI:
10.1080/135048697334818
Publication Frequency:
6 issues per year
Number of References: 40
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Abstract
The Black-Scholes theory of option pricing requires a perfectly specified model for the underlying price. Frequently this is taken to be a geometric Brownian motion with a constant, known volatility. In practice, parameters such as the volatility are not known precisely, but are simply estimates from either historical prices or implied volatilities. This paper presents a method for constructing hedging (trading) strategies which are robust' to misspecifications of the asset price model.
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| Keywords: Incomplete Markets; Option Hedging Strategies |
| view references (40) |

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